Fund managers expect the Bank of Thailand (BOT) to cut its policy interest rate another 25 basis points next month if the consumption and inflation indicators coming out at the end of this month still paint a grim picture.

Pongtharin Sapayanon, fixed-income fund manager at Aberdeen Asset Management, yesterday said the BOT had some room to readjust the rate, even though it had hinted at its previous meeting that the previous cut would be the last.

"We must wait and see. The data coming out this month will be taken into account by the central bank," he said.

A fund manager who did not want to be named said the interest-rate trend was still falling but not as aggressively as early this year.

"This year, the rate should be cut another 25 to 50 basis points. Then next year will be a different story."

However, fund managers said if the rate stayed at 3.5 per cent, the current long-term bond yield would reflect actual values. If the rate is cut, the bond yield is expected to hiccup downwards.

The fund manager said the bond yield was now back to a normal level, as it was priced since early this year.

"The yields of short-term bonds reacted by dropping 2 percentage points ahead of the central bank's announcement of an interest-rate cut early this year. The short-term bond yield now is correct, at the same level as the Monetary Policy Committee's rate. Long-term bonds dropped only 1 percentage point," the fund manager said.

Bond yields, especially on long-term bonds, have risen 70 to 80 basis points since last month, when the central bank cut the rate 50 basis points, bringing the total reduction for this year so far to 150 basis points.

Profit-taking was witnessed, as many did not believe the rate had hit bottom last month.

Thai Bond Market Association executive vice president Ariya Tiranaprakij said that apart from the domestic factor, the record high of 10-year US treasuries was the external factor affecting the local bond market.

However, she said the BOT's recent decision to cancel two tranches of 17-year bonds helped draw the yield down about 20 basis points.

Ariya said that with the bond yield likely at near bottom, many corporate debentures were expected to be issued during the rest of the year. However, trading will probably not be as active as it was last year. Currently, trading

volume for non-residents is Bt1 billion a day.

Association data shows the private sector issued Bt10.31 billion and Bt27.4 billion in corporate debentures in the first quarter and April, respectively. The association expects about Bt180 billion in debentures to be issued from the private sector for the entire year.

Anoma Srisukkasem,

Piyarat Setthasiriphaiboon

The Nation